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Ratios Essay

772 words - 4 pages

Individual Assignment – Week 5
Financial security is one of the biggest issues surrounding companies in the business world. Some company revenues have been unsteady over the past few years, particularly because of the state of the economy. However, financial ratios can be beneficial in helping a company regain its financial standing while pointing out its strengths and weaknesses. These ratios offer a summarized analysis of a company’s financial progress in its respective industry.
There are a number of financial ratios that can be used to help measure a company’s progress, such as current ratio, debt ratio, profit margin, and return on assets. Riordan Manufacturing and Kudler Fine Foods ...view middle of the document...

Usually, a ratio larger than one indicates that the company’s debt is larger than its assets. Conversely, ratio smaller than one shows that the company has acquired more assets than debt. The method for reaching the final margin is total liabilities divided by total assets. Riordan Manufacturing has a debt ratio of .29. The industry average debt ratio is 147. The debt ratio for Kudler Fine Foods is .28, compared to .81 of the industry average of. Calculations for the debt ratio of both companies are as follows:
Riordan Manufacturing: $13,961,155 / $47,409,137 = .29
Kudler Fine Foods: $746,290 / $2,675,250 = .28
Profit Margin
Profit margins, which are company returns on its sales, reveals the true profits that are made. The higher the ratio, the higher the chances are for a company to handle any pressure applied by its competition. To calculate the net profit margin, take the net profit before taxes and divide it by the net sales, then multiply that figure by 100. Riordan Manufacturing accumulated a profit margin of 7.5%, a ratio much higher than its industry average of 3.07. For Kudler Fine Foods, the company has a profit margin of 6.2, a little lower than the food industry average of 5.78. Calculated numbers for the profit margins of both companies are below:
Riordan Manufacturing: ($5,019,587 /...

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